Bank stocks rose Thursday on reports that the Obama administration could change accounting rules to make it easier for banking companies to unload distressed assets.

The KBW Bank Index started the day in negative territory but rebounded by midmorning to close up 1.8%. The turnaround occurred after CNBC reported that the administration was working on a modified "bad bank" plan to buy assets below market value, but not at "fire sale" prices.

To mitigate banks' losses on such transactions, the government might temporarily suspend mark-to-market accounting rules, CNBC reported, citing a source familiar with the plan. The administration is expected to announce the details Monday.

Frank Barkocy, the director of research at Mendon Capital Advisors Corp., said in an interview Thursday that bank stock investors were relieved to hear the rumors about changes in mark-to-market accounting, "which has been an issue for a while now" within the banking industry.

"To some degree, we're moving closer to more details on how the bad bank is going to be set up, which will remove some of the uncertainty that has been impacting the stocks," Mr. Barkocy said.

The Dow Jones industrial average rose 1.34%, and the Standard & Poor's 500 rose 1.64%.

Early in Thursday's session, Bank of America Corp.'s stock had shed nearly 20%, falling to $3.77, its lowest price since February 1989, as rumors continued to swirl that the government could nationalize the Charlotte company.

But B of A rebounded after the CNBC report to close up nearly 3%, to $4.84.

Kenneth D. Lewis, B of A's chairman and chief executive, disclosed in a Securities and Exchange Commission filing Thursday that he and five other insiders had bought 370,000 shares the day before. Mr. Lewis personally bought 200,000 for more than $958,000. Last month he paid about $1.2 million for the same amount of stock.

Gains among the rest of the sector were widespread. Among the large caps, JPMorgan Chase & Co. rose 2.1%, Citigroup Inc. rose 1.2%, and U.S. Bancorp rose 5.8%. Many smaller companies also rose. Fifth Third Bancorp gained 6.5%, SunTrust Banks Inc. rose 4.2%, Regions Financial Corp. rose 13.2%, and PNC Financial Services Group Inc. rose 3.5%.

BB&T Corp. hit a 13-year low of $16.53 during Thursday's session but recovered somewhat to closed down 6.9% for the day, at $17.43. Greg Ketron, a Citi analyst, downgraded the Winston-Salem, N.C. company's stock to "hold," from "buy," and cut his price target by $8, to $24.

"Though we do not expect this relative operating outperformance to change in the near term, we believe increasing credit losses, slower earnings-per-share growth, and higher risk to maintaining current dividend levels in order to preserve capital will create a challenging backdrop for the stock," Mr. Ketron wrote in a research note.

State Street Corp. rose 14.1%. The Boston company said Thursday that it was slashing its dividend by 23 cents, to a penny a share, as part of its plan to raise its tangible common equity ratio from 1.79% at the end of last month to 4.91% by the end of this year.

It also issued "updated" full-year earnings of $4.30 a share, versus previously reported results of $3.89 a share, to reflect a $278 million cut in employee incentive compensation.

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